Earnings Season Thus Far: Encouraging Top Line, Disappointing Bottom Line

Summary

The earnings season is shifting into a high gear this week with 145 of the S&P 500 (SPY) companies expected to report earnings, including some of the heaviest guns.

Before we let Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), and Facebook (FB) take the center-stage, let’s take a quick look at how things look thus far.

In short, the Q4/FY 2019 earnings season isn’t too impressive, thus far. While we see companies “beating” when it comes to the top line (revenue), we also see companies coming short when it comes to the bottom line (net income).

Encouraging Top Line

Out of the S&P 500 companies that have reported their earnings to date (end of week 1/24/2020), 67% have beaten revenue estimates for Q4/2019, significantly above the 5-year average of only 59%.

Most of the “beats” took place among the Real Estate (XLRE), Communication Services (XLC), and Information Technology (XLK) sectors.

On the other hand, the sectors that see at least half the reporting companies not meeting the market expectations are Industrials (XLI), Healthcare (XLV), and Energy (XLE).

Overall, the companies that have reported earnings to date, have posted revenue growth of 2.9% during Q4/2019, led by the Healthcare (+11%), Utilities (XLU) (+9%), and Communication Services (+9%) sectors.

On the other hand, the lagging sectors from the revenue growth perspective are Materials (XLB) (-16%), Energy (-7%), and Industrials (-3%).

Disappointing Bottom Line

Out of the S&P 500 companies that have reported their earnings to date, 73% have beaten EPS estimates for Q4/2019, only slightly above the 5-year average of only 72%.

Most of the “beats” took place among the Information Technology, Communication Services, Consumer Staples (XLP) sectors.

On the other hand, the sectors that see at least half the reporting companies not exceeding (i.e., in-line and below) the market expectations are Real Estate, Industrials, and Energy.

Overall, the companies that have reported earnings to date, have posted a decline in earnings of -1.9% during Q4/2019, led by the Energy (-42%), Consumer Discretionary (XLY) (-14%), and Materials (-11%) sectors.

On the other hand, the outperforming sectors from the EPS growth perspective are Utilities (+19%), Financials (+7%), and Healthcare (+6%).

All in All

There’s no reason to be too excited, thus far, when it comes to the current earnings season. It may not be too disappointing, but it’s certainly nothing to write home about.

Overall, S&P 500 companies are beating EPS estimates (in aggregate), to date, by 3.2%. This may sound nice, but it’s actually over 1/3 below the 5-year average of 4.9%.

Perhaps the earnings reports by some of the top tech names would turn this earnings season into something we can rely on more heavily when assessing the odds of this bull market marching higher.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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